Hollywood showdown: Lawmakers threaten industry’s tax breaks

From Capitol Hill to state capitals, real-life Hollywood cliffhangers are being played out over tax breaks designed to woo the motion picture and television industry.

By William Douglas - McClatchy Washington Bureau

From Capitol Hill to state capitals, real-life Hollywood cliffhangers are being played out over tax breaks designed to woo the motion picture and television industry.

Lawmakers are re-evaluating the generous tax incentives they provide the film industry. Many say it’s not worth the money, especially when governments are facing tight budgets and the Hollywood is enjoying a record $35.9 billion in worldwide box office receipts _ $10.9 billion alone from the United States and Canada.

“They’re learning that the incentives don’t live up to the claims of their proponents,” said Scott Drenkard, an economist for the Tax Foundation, a longtime critic of the breaks. “The main reason they are popular is they’re a little bit sexy. They give politicians the ability to rub elbows with movie stars.”

The industry and its allies are fighting back, though, saying they bring jobs and tax revenues anytime they produce a movie or TV show in a U.S. location.

“Tax incentives are creating jobs and promoting economic activity,” said Vans Stevenson, the senior vice president for state government affairs at the Motion Picture Association of America. “You see so many success stories because there is a significant return on investment, and that is true across the country.”

Nationwide, the MPAA said, the television and film industry supported 1.9 million private-sector jobs and $43.1 billion in wages in 2011, the most recent figures available.

Thirty-nine states and Puerto Rico offer film and television production incentives. Ten states alone provide the film industry with $1.4 billion a year in tax breaks, according to a report that California’s Legislative Analyst’s Office released last month.

But some states now are saying “cut” to tax breaks.

Arizona, Idaho, Indiana, Iowa, Kansas, Missouri and Wisconsin have halted their incentive programs or left them without funding in their upcoming budgets, according to the National Conference of State Legislatures.

And incentive programs in other states might be on the verge of fading to black.

North Carolina, for example, has been one of Hollywood’s most aggressive suitors, attracting big-ticket films such as “Iron Man 3” and “The Hunger Games” and television series such as CBS’s “Under the Dome,” NBC’s “Revolution” and Fox’s “Sleepy Hollow.”

Now, however, its Legislature is reconsidering its incentive program, which provides producers with 25 percent refunds on in-state spending up to $20 million.

“Some of the credits have a return on investment, and some don’t,” said state Rep. Rick Catlin, a Republican. “We’re already in the hole, and we’re trying to find money to give teachers a raise. We’re going to have to compromise to extend the film credits.”

Industry executives contend the film business has been a boon to North Carolina, responsible for 4,200 full-time jobs, 15,000 part-time jobs and $160 million of goods and services sold locally to the film industry.

“We feel we’re the rainmakers for the state in a lot of ways,” said Chris Cooney, the chief operating officer of EUE/Screen Gems Ltd. and a part-owner of EUE/Screen Gems Studios. “We’ve done sequels of movies, we’ve done nine seasons of ‘One Tree Hill,’ we did seven seasons of ‘Dawson’s Creek’ here. . . . That’s a consistent provider of jobs and a major contributor to the state’s economy.”

“It’s not a boondoggle,” said Connie Majure-Rhett, the president of the Chamber of Commerce in Wilmington, N.C., where EUE/Screen Gems has a 50-acre, 10-soundstage lot. “If we don’t have incentives, we can’t even talk to (film companies). I don’t like incentives, but they’re there. They’re part of the reality.”

In Florida, where portions of “Transformers 3” and USA Network’s “Burn Notice” were filmed, the Legislature ended its session earlier this month without funding its film incentive program. The state’s original program was supposed to operate from 2010 to 2016, but the $296 million that funded it ran dry.

In Maryland, lawmakers had tried to curb tax breaks for Netflix’s popular political drama “House of Cards.”

The show’s producers launched a hardball power play seemingly right out of the playbook of Francis Underwood, the series’ main character, played by Kevin Spacey.

The producers abruptly threatened to take their lights, camera and economic action elsewhere. The state reconsidered and came up with $11.5 million in tax incentives and state grants to keep the show in Maryland.

“Spoiler alert: We’re going to keep the 3,700 jobs and more than $100 million of economic activity that ‘House of Cards’ generates right here in Maryland,” said Gov. Martin O’Malley.

Even California, Hollywood’s mother state, is debating the tax credits.

Some state legislators, including Republican gubernatorial candidate Tim Donnelly, are proposing expanding California’s $100 million tax-incentive program to keep pace with other states.

“We shouldn’t be following and trailing behind places like Georgia and Louisiana and Canada,” Donnelly said this month. “It’s time to bring Hollywood home.”

“I know that other states are subsidizing movies now, up to 30 percent of the cost of a movie, which is silly economic policy,” Kashkari told The Sacramento Bee last month. “If other states or other countries are going to do silly things, then let them do silly things.”

California’s nonpartisan Legislative Analyst’s Office recently questioned the value of a tax-break bidding war with other states. “The film tax credit does not pay for itself,” the office concluded.

In Washington, Congress also is grappling with the issue.

Some Senate Democrats not only want to continue the tax break that allows the film industry to write off the first $15 million of production costs for movies and TV shows primarily made in the United States, but also to expand the credit to live theatrical productions, a nod to Broadway and the Las Vegas Strip.

“As an integral part of the entertainment industry, live theater must be offered the same federal tax incentives as those afforded to television and film productions, so that investment in commercial stage production does not get pushed abroad,” Sen. Charles Schumer, D-N.Y., said last month.

The film credit is stalled in the Senate as part of an $85 billion package to renew 50 targeted tax breaks that have expired.

Even if senators resolve their differences and eventually approve the tax extenders, the film credit’s prospects in the Republican-controlled House of Representatives are iffy.

Rep. Dave Camp, R-Mich., the chair of the House Ways and Means Committee, released a draft of a tax-overhaul plan last February that calls for repealing the film industry credit.